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Silver Mining in Argentina

Posted on 2012-11-05, By A-Best Staff

By Melissa Pistilli—Exclusive to Silver Investing News

Silver ArgentinaArgentina, South America’s second largest economy, ranks 10 on The Silver Institute’s list of top silver producing countries in the world. In 2010 Argentina produced 20.6 million ounces of silver. The Latin American nation also hosts to two of the world’s leading silver mines: Silver Standard’s Pirquitas Mine which produced 6.3 million ounces last year and Hochschild Mining/Minera Andes‘ San Jose Mine which produced 5.32 million. Other global leaders in silver production with operations in Argentina include Pan American Silver Corp, AngloGold Ashanti, and Goldcorp.

Argentina’s mining industry is rather young, with significant mining operations developing recently over the last two decades. In 1993, mining legislation took a more friendly turn for foreign companies and by 1995 mining exports had surged 33 percent; by 2006 mining investment had reached $1.27 billion.

Challenges to mining industry

The burgeoning mining climate in Argentina is not without its drawbacks. “Political uncertainty and the relationship with the local authorities and communities are the main challenges for the development of mining in Argentina,” according to an extensive article on the topic in the Engineering and Mining Journal.

Other challenges include a shortage of mining infrastructure and service providers compared to more advanced mining-focused countries in the region like Peru and Chile. Concerns of potential environmental issues can also weigh heavily on politics in several of Argentina’s provincial governments. Each province controls the natural resources in its own jurisdiction, meaning the procedures for environmental studies and licensing approvals can vary across the country. Eight of Argentina’s twenty-three provinces have banned open-pit mining and the use of toxic substances including Tierra del Fuego, Chubut, Córdoba, Mendoza, Neuquén, Río Negro, Tucumán and San Luis.

In October, under the leadership of second-term President Cristina Fernandez de Kirchner, Argentina’s government ordered oil, gas and mining companies to repatriate all future export revenue citing the need to curtail capital flight as the country’s central bank attempts to sustain a gradual depreciation of the peso and stem inflation. Previously, mining companies had only been required to repatriate 30 percent of export revenue.

While the market reacted poorly to the news placing significant sell-off pressure on several mining companies with Argentinean operations, analysts report the reaction was a bit overdone and based on misunderstanding. Investors may have interpreted the decree to mean that producers could no longer transfer earnings offshore to pay earnings dividends. Rather, the new law means export revenues from mining projects will need to be repatriated and converted to Argentine currency, and then can be converted back to dollars or other currencies before being redistributed overseas as earnings dividends. Similar requirements are already on the books in Chile and Brazil.

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